LONDON, May 10, 2018 /PRNewswire/ -- The next generation of zinc mines are ready to supply but are smelters able to treat all the concentrate? Indeed, a bottleneck on the smelting side underpins our view of rising concentrate inventories over the next few years, resulting in higher treatment charges.
While our base case no longer has smelter output constrained enough to meet only modest demand growth. In this Insight, we look at a 2% change to our base case Chinese smelter utilisation rates and what that may mean for the global zinc metal and concentrates markets.
Chinese smelter output surged in 2017 Q4
A major surprise in 2017 Q4 was the record Chinese quarterly smelter output figures. Smelter output totalled 1.68 million tonnes (an outright record and up by 5% year-on-year) implying very high utilisation (near 100%) for a brief period. What made this result more impressive was the backdrop of critical levels of concentrate inventories and record low spot TCs.
While this result undoubtedly reflected smelters resuming operations after maintenance and feed-related closures earlier in 2017, it also reflected an increase of secondary oxides and dusts into the feed mix, supporting higher utilisation rates during the quarter. Below we have a brief look at the sensitivities of the global market to Chinese smelter utilisation and what a 2% gain or loss in utilisation may mean for the market in terms of the market balance and prices.
Before applying such scenarios, it is worth noting that through our historical series, 94% has been the effective cap on China's average smelter capacity utilisation, and even this figure has been impossible to maintain for more than 9-12 months. Over longer periods, 91.5-92% has been an effective peak. But it is also interesting that over the past decade, the average share of large smelters (> 60,000 t/y) has gradually risen and there has been a decline in share for both medium (20-60 kt/y) and small (<20,000 t/y) smelters.
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